There is a surge in GST collections, which has proved sceptics wrong and even surpassed the expectations of the authorities
Only a couple of years ago, top officials in the Department of Revenue used to gloat over a collection of GST Rs 150,000 crore if achieved in any given month. They couldn’t even imagine that collection of Rs 150,000 crore consistently every month in a year would ever be possible. But, this happened during 2022-23, when the department garnered a total of Rs 1800,000 crore. During the current year, it is aiming at a target of Rs 2000,000 crore.
A major factor behind this is an increase in nominal GDP during 2022-23 by 15.9 per cent (from a tax collection angle, this is what matters) on top of a surge of 18.4 per cent registered during 2021-22 when GST collection was Rs.1476,000 crores. But, an equally potent factor was relentless efforts made by the tax authorities to ensure compliance and prevent evasion. For instance, during 2022-23, the Directorate General of GST Intelligence (DGGI) detected GST evasion of over Rs 100,000 crore
GST is a single nationwide tax that subsumes within it more than a dozen taxes of the pre-GST era, namely central excise duty (CED), service tax, sales tax/value added tax (VAT) besides a host of local taxes such as octroi, purchase tax, turnover tax, etc. It is applied all over India, with the provision of set-off for tax paid on inputs also known in common parlance as input tax credit (ITC). It has an in-built disincentive for an entity not keen on reporting its purchases or sales or else, it won’t get ITC.
Yet, fraudsters have dared to dodge the tax administration and the latter has acted with alacrity to track and nail them. The modus operandi adopted by tax dodgers and fraudsters include non-payment of tax on supply of taxable goods and services (clandestine removal); fraudulent availment of the ITC based on invoices from fake firms; wrong availment of ITC; short payment of tax by undervaluing taxable goods and services; wrong availment of exemption notifications etc.
Under the pre-GST dispensation, it was possible to remove goods from the factories without raising an invoice, move to the sale points and sold to the consumers without getting noticed hence, no payment of tax. It was a horrible situation of the consumers paying tax but not reaching where it should (read: the government coffers). The situation was aggravated by most of the transactions happening in cash which meant there won’t be any trail.
Under GST, the activity of a firm about a transaction is under gaze at every stage. At the time of goods leaving its premises, it is required to generate an electronic or e-Invoice - a document in a digital file format, just like a PDF file that is authenticated electronically by GST Network or GSTN and involves the issue of an identification number against every invoice by the Invoice Registration Portal (IRP). E-invoicing is mandated by the Union Government for businesses with a turnover of more than Rs. 10 crores.
The firm is also required to generate an electronic Way or e-Way bill on the eWay Bill Portal. This document is required to be carried by a person in charge of the conveyance carrying any consignment of goods of value exceeding Rs 50,000/. This is mandatory for all transactions such as outward supply whether within the State or interstate, inward supply within the State or from interstate including from an unregistered person or for reasons other than supply also.
Transporters are responsible for generating an e-way bill from the consignment's invoice, bill of supply, or delivery challan if neither the seller or buyer has generated one.
What if, the seller has neither generated an e-Invoice nor an e-Way bill (this could be possible if he manages to show the values as being less than the threshold of Rs 10 crore and Rs 50,000 respectively) nor the transporter has generated an e-Way bill? The tax department can still nab him by looking at the details uploaded by the buyer on the GSTN portal which the latter is required to do to claim ITC. Surely, the tax administration would have made use of the above mechanisms to collect tax dues from the sellers indulging in the clandestine removal of goods.
Fraudulent availment of the ITC based on invoices from fake firms refers to cases where such entities generate bills for goods that don’t exist or services not rendered. These entities are created on paper with the sole intent of defrauding the exchequer. For alert taxmen, it should not be difficult to figure them out by cross-checking their address and phone numbers with available data in other government departments, say, the registrar’s office in the Ministry of Corporate Affairs (MCA) or even conducting physical verification.
A somewhat less severe fraud perpetrated on the exchequer is ‘wrong availment of ITC’. The entities do it by showing in the claim/document a higher value of services than what is paid to the service provider. For instance, the DGGI is going hammer and tongs after dozens of insurance companies that have paid much higher commissions (albeit on paper) to service providers than permitted by the Insurance Regulatory and Development Authority (IRDA).
Undervaluing taxable goods and services (also referred to as under-invoicing in business circles) is a commonly used practice to pay less tax than what is due. For instance, if a good worth Rs 100 is shown as Rs 80 then GST of say 18 percent will lead to a short payment of Rs 3.6 (20x0.18). Under GSTN which has a digital record of the transaction up to the point of sale to a consumer, this understatement of the true value (read: Rs 100) can’t go unnoticed. The taxman will get to see Rs 100 at some stage and collect the shortfall in tax along with a penalty.
Finally, businesses also wrongly avail of exemption notifications. For instance, milk products, including paneer, curd etc attract nil GST if sold in loose form whereas these attract 5 per cent if sold in pre-packaged and labelled. Dubious firms can leverage this fine demarcation to escape tax net even when they sell in pre-packs.
Even as the actions of DGGI in all aforementioned areas are yielding good results in terms of detecting evasion and making dodgers pay up tax dues, the latter could still invent ways to escape the former’s radar. For instance, all players in the supply chain right up to the retailer could gang up to ensure that the transaction doesn’t show up on GSTN. Can the department deal with such situations also?
DGGI is using technology tools such as ‘end-to-end’ data analytics for a sector or a sub-part of it and ‘gap analysis’ of the taxes paid in a supply chain (this includes inter alia comparison of the tax payment profile of a particular sector vis-a-vis the pre-GST regime) to identify high-risk sectors where a significant chunk of value addition is not captured leading to tax pilferage. This will be followed by necessary enforcement action to check tax evasion at the manufacturing stage itself or a change of policies if required.
Hopefully, the above efforts will bear fruit. Together with sustaining the momentum of current actions, India could even target a GST collection of Rs 2400,000 crore during 2024-25. At that stage, the government could implement pending reforms such as taxing petroleum products under GST and going for a simpler tax with three slabs.
(The writer is a Policy Analyst)
